Now’s not the time to buy Tucows stock, Echelon Wealth says

Tucows (TSX:TC) produced solid enough results in its quarterly earnings but it’s not enough to move the needle for analyst Gianluca Tucci of Echelon Wealth Partners, who says that the inflection point for TC’s next leg of growth is still two or three quarters away.

Ting management emphasized the expansion of its Ting gigabit fibre internet across the US, where the company has Ting currently operating in five cities plus one more soon to come.

“Our third quarter results again demonstrate how the consistent performance and cash flow generation of our Domains and Ting Mobile businesses are enabling us to invest in the build out of the Ting Internet footprint for our next phase of outsized growth,” said Elliot Noss, President and CEO, in a press release.

Tucci points out that while Tucows’ fibre Internet rollout is costly, over time it’ll provide a “robust risk/reward with its de-risking techniques,” while the company’s health cash position of $10.8 million and up to $140-million credit facility gives Tucows more than enough financing to carry out its Ting Mobile and Internet expansion plans. (All figures in US dollars unless noted otherwise.)

TC’s third quarter beat Tucci’s estimates for revenue ($83.5 million versus Tucci’s $79.3 million) and Adj. EBITDA ($11.9 million versus Tucci’s $9.6 million).

The analyst says that TC is currently trading at an EV/Sales, EV/EBITDA and P/E valuation of 1.8x/14.6x/37.0x which compares to its Domain peer average of 6.7x/20.2x/24.8x and Internet peer average of 2.5x/7.1x/14.9x.

With a C$75.00 target price (unchanged), Tucci keeps his “Hold” rating for Tucows while at the same time intimating that an upgrade could be around the corner.

“We remain a Hold, however we believe the inflection point to TC’s next leg of growth via its fibre initiatives could be two or three quarters away, at which point we would be biased to adjust our estimates, rating and PT accordingly,” says Tucci.